Capital Gains Tax
Capital Gains Tax on Property Sale: LTCG, STCG and Exemptions (2025)
Budget 2024 fundamentally changed how property sale gains are taxed in India. LTCG is now charged at a flat 12.5% without indexation — a significant shift that affects every property seller. This guide explains the new rules, provides a worked example, and shows exactly how to use Section 54 and 54EC to eliminate or reduce your tax liability legally.
12.5%
LTCG rate on property (Budget 2024 — no indexation)
24 months
Minimum holding period for LTCG classification
Rs 50L
Section 54EC bond investment limit per year
No indexation
Indexation benefit removed from Budget 2024-25
The Budget 2024 Shock: Indexation Removed for Property LTCG
Union Budget 2024-25, presented on July 23, 2024, removed the indexation benefit for long-term capital gains on immovable property. Previously, property sellers could choose to pay 20% LTCG tax on gains computed after adjusting the purchase price for inflation using the Cost Inflation Index (CII). Under the old system, a property bought in 2005 for Rs 30 lakh could have its indexed cost inflated to Rs 1.1 crore by FY 2024-25, dramatically reducing the taxable gain.
From July 23, 2024, all property sales (sales of land, residential properties, and commercial buildings) are subject to LTCG at a flat 12.5% on the absolute gain (sale price minus original purchase price) without any indexation adjustment. There is no Cost Inflation Index benefit. For properties purchased decades ago at much lower prices, this change can substantially increase the effective tax burden despite the lower 12.5% rate compared to the previous 20%.
However, the Finance Act 2024 provided a one-time transitional relief: for properties acquired before July 23, 2024 and held by individuals and HUFs, taxpayers could choose the more beneficial of the two computations — the new 12.5% flat rate on absolute gain OR the old 20% rate with indexation — for properties sold between July 23, 2024 and March 31, 2025. For sales on or after April 1, 2025, only the 12.5% without indexation option applies.
Important: Property Sales From April 1, 2025 Onwards
For any property sale completed on or after April 1, 2025, only the 12.5% flat LTCG rate without indexation applies. There is no option to choose indexed computation. Plan your property sales accordingly, especially if you are sitting on a large unrealised appreciation on an old property.
LTCG vs STCG on Property: Key Differences
Long-Term Capital Gains (LTCG)
Holding Period
More than 24 months (2 years) from date of purchase
Tax Rate
12.5% flat on absolute gain (no indexation). No exemption limit. Full gain is taxable at 12.5%.
Applicable From
Sales on or after July 23, 2024 (Budget 2024 effective date)
Exemptions Available
Section 54 (reinvest in residential property), Section 54B (agricultural land), Section 54EC (NHAI/REC bonds up to Rs 50L), Section 54F (reinvest ALL proceeds in residential house)
ITR Form
ITR-2 Schedule CG (Capital Gains) — cannot use ITR-1
Short-Term Capital Gains (STCG)
Holding Period
24 months or less from date of purchase
Tax Rate
Added to total income and taxed at applicable slab rate: 5%, 20%, or 30% depending on total income level
Deductions Allowed
Cost of improvement, brokerage, stamp duty on purchase, registration charges — all deducted from sale price to arrive at STCG
Exemptions Available
No Section 54/54EC exemptions for STCG on property. The gain is simply added to taxable income.
Loss Set-Off
STCG loss can be set off against STCG or LTCG from any capital asset in the same year. Can be carried forward for 8 years.
Worked Example: Property Bought in 2015 for Rs 50L, Sold in 2025 for Rs 1.2 Crore
This example shows the dramatic impact of the indexation removal under Budget 2024. The property has been held for 10 years — clearly long-term. We compare what the tax would have been under the old indexed system vs the new 12.5% flat system.
Old System: 20% with Indexation (Pre-July 2024)
New System: 12.5% without Indexation (Post-July 23, 2024)
Verdict: In this case, the new 12.5% system is marginally cheaper (Rs 99,701 less).
But this conclusion changes with time. For a property bought in 2000 for Rs 20L and sold for Rs 1.5 crore today, the indexed cost could approach Rs 1.1 crore (CII ratio ~5.5x), leaving only Rs 40L taxable at 20% = Rs 8L tax. The new system would tax the full Rs 1.3 crore gain at 12.5% = Rs 16.25L — nearly double. The longer the holding period and the older the purchase, the more the indexation removal hurts.
Exemptions: How to Legally Reduce or Eliminate LTCG Tax
Section 54
Reinvest in Residential PropertyEligibility
Must sell a residential property (house/apartment). Gain must be LTCG. New property must also be residential. Applicable for individuals and HUFs.
Timeline
Purchase new house within 1 year before or 2 years after sale date. Or construct within 3 years. Construction must be completed — not just started.
Exemption Amount
Exempt gain = lower of (a) actual LTCG or (b) amount invested in new property. Exemption capped at Rs 10 crore (limit introduced in Budget 2023).
Important Condition
Cannot sell the new property within 3 years of purchase — if sold, the exempted gain becomes taxable as LTCG in the year of new property sale.
Section 54EC
NHAI / REC Bonds — Rs 50L LimitEligible Bonds
Bonds issued by NHAI (National Highways Authority of India) and REC (Rural Electrification Corporation Limited). Both are specified bonds under Section 54EC.
Investment Timeline
Must invest within 6 months of the date of property sale. If sale happens in October, investment must be made by the following April.
Limits
Maximum Rs 50 lakh investment in 54EC bonds per financial year. Applies even if sale happened late in the year spanning two FYs — Rs 50L cap per FY.
Lock-in and Returns
Mandatory 5-year lock-in period. Current interest rate: approximately 5% per year, paid annually and fully taxable as income from other sources.
Section 54F
Non-Residential Asset Sold, Reinvest in HouseSection 54F applies when you sell any long-term capital asset other than a residential property (e.g., land, commercial property, equity shares) and reinvest the NET SALE PROCEEDS (not just gains) in a new residential house. The exemption is proportionate: if you invest the full sale proceeds, full exemption; if partial, proportionate relief. Condition: you must not own more than one other residential house on the date of sale.
TDS on Property Sale — Section 194IA (Above Rs 50 Lakh)
Under Section 194IA of the Income Tax Act, the buyer of any immovable property (other than agricultural land) with a sale price of Rs 50 lakh or more must deduct TDS at 1% of the total sale consideration at the time of payment. This applies even if the payment is made in installments — TDS must be deducted on each installment.
The buyer deposits this TDS using Form 26QB (available on the income tax portal or through authorised banks) within 30 days from the end of the month in which TDS was deducted. After depositing TDS, the buyer generates Form 16B, which serves as the TDS certificate and is provided to the seller. The seller can view this in Form 26AS and claims TDS credit when filing their ITR.
A common mistake is buyers failing to deduct TDS on property purchases above Rs 50 lakh, attracting penalties under Section 201. The buyer becomes a "defaulter" and may face interest at 1–1.5% per month and potential prosecution. Even if the seller declares lower or nil tax liability due to exemptions, the TDS obligation on the buyer persists unless a nil-TDS certificate is obtained from the income tax department.
| Seller Type | TDS Rate | Notes |
|---|---|---|
| Resident Indian | 1% of sale price | Form 26QB, deposit within 30 days |
| NRI Seller (LTCG) | 20% (may vary with DTAA) | Form 27Q, can apply for lower TDS certificate |
| NRI Seller (STCG) | 30% of gain (slab rate) | Higher TDS burden — NRI should get Section 197 certificate for reduced rate |
| Agricultural land sale | No TDS under 194IA | Agricultural land is exempt from 194IA regardless of sale price |
Joint Ownership — Splitting Capital Gains for Tax Efficiency
When two or more individuals jointly own a property, the capital gains on sale are distributed among them in proportion to their ownership share as defined in the sale deed or registration documents. Each co-owner must report their proportionate gain in their respective ITR under Schedule CG (Capital Gains).
This proportionate ownership structure can be strategically beneficial when co-owners have different total income levels or different tax obligations. For example, if a property worth Rs 1.5 crore (bought for Rs 60L) is jointly held by spouses with 50% ownership each, the total LTCG of Rs 90 lakh is split into Rs 45 lakh each. Each spouse independently evaluates and claims exemptions under Section 54 by separately reinvesting their Rs 45 lakh share in new residential property.
When computing capital gains for jointly owned property, cost of acquisition is apportioned based on ownership share. If owner A paid 40% and owner B paid 60% of the original purchase price, both the cost base and the sale consideration are split in the 40:60 ratio. The date of acquisition for LTCG holding period purposes is the original purchase date for all co-owners, not the date of the co-ownership arrangement.
Frequently Asked Questions
What is the LTCG tax rate on property sale in 2025?
LTCG on immovable property sold after July 23, 2024 is taxed at a flat 12.5% without indexation benefit. This replaced the earlier 20% rate with indexation. For sales before July 23, 2024, you could choose the more favourable of the two methods.
What is the holding period required for LTCG on property?
Property must be held for more than 24 months (2 years) to qualify for LTCG treatment at 12.5%. Property sold within 24 months is classified as short-term capital asset and the gains are added to total income and taxed at applicable slab rates.
How does Section 54 exemption work for capital gains?
Section 54 exempts LTCG if reinvested in a new residential property within 1 year before or 2 years after the sale (or 3 years for construction). The exemption equals the lower of actual LTCG or amount reinvested, subject to a Rs 10 crore cap. The new property cannot be sold within 3 years.
What are Section 54EC bonds and how much can I invest?
Section 54EC bonds are NHAI and REC bonds that allow LTCG exemption when invested within 6 months of property sale. Maximum Rs 50 lakh per financial year with a 5-year lock-in. Interest (~5% p.a.) is taxable as income from other sources.
Who deducts TDS on property sale?
The buyer of any property above Rs 50 lakh must deduct TDS at 1% of the total sale consideration under Section 194IA. This is deposited via Form 26QB within 30 days. The seller receives Form 16B as the TDS certificate and claims credit in their ITR.
Can I split capital gains in joint property ownership?
Yes. Capital gains in jointly owned property are split in proportion to each owner's share. Each co-owner reports their proportionate gain in their individual ITR and can independently claim Section 54 or 54EC exemptions on their respective share of the gain.
Is capital gains tax applicable on inherited property?
Inheritance itself is not taxable. However, when you sell inherited property, capital gains tax applies. The cost of acquisition is the original cost paid by the previous owner (or FMV as of April 1, 2001 for very old properties). The holding period includes the previous owner's tenure, which often results in LTCG classification.
Can I use Section 54 and 54EC together?
Yes. Both exemptions can be used simultaneously for the same property sale. If your LTCG is Rs 90L, you can reinvest Rs 50L in 54EC bonds (exempt Rs 50L) and Rs 40L in a new house under Section 54 (exempt Rs 40L), resulting in zero tax on the full Rs 90L gain.
Selling a property? Calculate your exact capital gains tax.
Enter your purchase price, sale price, and date — Oquilia instantly computes LTCG or STCG, shows the impact of Section 54 and 54EC exemptions, and tells you how much tax you can legally eliminate.